Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions - A European Initiative in Electronic Commerce
Date: 1997-04-16
Institutions: European Commission
Subjects: EU initiative, industrial policy, information technology, telecommunications, trade policy

COMMISSION OF THE EUROPEAN COMMUNITIES 

te 

* 

Brussels,  16.04.1997 
COM(97)  157  final 

COMMUNICATION FROM THE COMMISSION 

TO THE COUNCIL, THE EUROPEAN PARLIAMENT, 
THE ECONOMIC AND SOCIAL COMMITTEE 
AND THE COMMITTEE OF THE REGIONS 

A European Initiative in Electronic Commerce 

Table of Contents 

Executive Summary 

Introduction 

1. The Electronic Commerce Revolution 

Electronic Commerce: the Internet revolution 
The next generation markets 
The opportunities for Europe 
Electronic Commerce: international comparisons 
Marshalling Europe's strengths 
The need for global consensus 

2. Ensuring Access to the Global Marketplace: Infrastructure, Technology and 

Services 

Maximising the effects of telecommunications liberalisation 
Maximising the benefits of the liberalisation of IT markets 
Removing capacity bottlenecks 
Ensuring interoperability in a competitive environment 
Making user-friendly electronic commerce services available: European R&D 
International industrial cooperation in infrastructure, technologies and services 

3. Creating a Favourable Regulatory Framework 

Building trust and confidence 
Ensuring full access to the single market 
The principles of an electronic commerce regulatory framework 
The essential features of a  regulatory approach 

A regulatory approach that develops appropriate horizontal pol 
Working towards a consistent global regulatory framework 

icies 

4. Promoting a Favourable Business Environment 

Consumers: creating awareness and confidence 
Business: creating awareness and encouraging bsst practice 
Public administrations: promoting a more pro-active public sector 
Putting electronic commerce at the service of the citizen 

Conclusions 

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Asu 

This Communication and related initiatives as well as coming legislation can be accessed 
electronically on http://www.ispo.cec.be/Ecommerce. 

PREFACE 

EXECUTIVE  SUMMARY 

The aim of this European Initiative is to encourage the vigorous growth of  electronic 
commerce  in  Europe.  A  fast  moving  sector,  electronic  commerce  will  have  a 
considerable  impact  on  Europe's  competitiveness  in  global  markets.  Building  upon 
Commission's  work  to  date,  it  provides  a  coherent  policy  framework  for  future 
Community  action, and aims at establishing  a common European position to  achieve 
global consensus through international negotiations. 

I.  THE ELECTRONIC COMMERCE REVOLUTION:  CHALLENGES AND OPPORTUNITIES 

"Born global", electronic commerce encompasses a wide spectrum of activities, some 
well established, most of them very new. Driven by the Internet revolution,  electronic 
commerce  is  dramatically  expanding  and  undergoing  radical  changes.  It  includes 
indirect electronic commerce (electronic ordering of tangible goods), as well as direct 
electronic  commerce  (online  delivery  of  intangibles  ).  A  fast  moving  environment, 
electronic  commerce  is  engendering  a  wide  array  of  innovative  businesses,  markets 
and trading communities -  creating new functions  and new revenue streams. 

Electronic commerce presents enormous potential opportunities for consumers and for 
businesses  in  Europe,  particularly  for  SMEs.  Its  rapid  implementation  is  an  urgent 
challenge  for  commerce,  industry  and  governments  in  Europe.  Electronic  commerce 
makes it possible to trade at low cost across regions and national frontiers. To reap its 
full  benefits,  the  development  of  efficient  distribution  channels  and  trans-European 
network  is  necessary  for  the  physical  delivery  of  goods  ordered  electronically, 
including efficient,  modern postal services. 

Stimulating  competition  in  the  Single  Market,  electronic  commerce  is  already 
bringing  profound  structural  changes.  New  skills  will  be  needed  to  create  and 
maintain  newr jobs  in  Europe.  Europe's  main  competitors  have  already  resolutely 
seized  opportunities  offered  by  electronic  commerce  -  with  the  US  building  a 
substantial  lead. However, Internet  commerce is catching up in a number  of  Member 
States. In this respect, Europe can marshal a number of specific  strengths in the  fields 
of  technologies,  content  creation  and  linguistic  and  cultural  diversity.  Similarly,  the 
use of a  single  currency  in the  world's  largest  Single Market  will  represent  a  strong 
incentive  for  the  take  up  of  electronic  commerce  in  Europe  whereas,  conversely, 
electronic commerce can contribute to the acceptability of the Euro. 

Thus  there  is  an  urgent  need  to  engage  in  an  early  political  debate  with  the  aim  to 
provide  a  stimulus  to  electronic  commerce  and  to  avoid  a  fragmentation  of  this 
promising market. 

AL 

IL  A C C E SS  TO  T HE  G L O B AL  M A R K E T P L A C E: 
SERVICES 

I N F R A S T R U C T U R E S,  T E C H N O L O G I ES  & 

in 

the 

implementation  of 

in  Europe.  However, 

High telecommunication  tariffs  have long been a major  stumbling block for electronic 
the  package  of 
commerce 
telecommunication  liberalisation  measures  is  already  leading  to  lower  prices  and  to 
more  flexible  pricing  schemes.  The  take  up  of  electronic  commerce  is  significantly 
higher 
the  most  competitive  markets.  The  WTO  Agreement  on  Basic 
Telecommunication  will contribute directly to the emergence of a global  marketplace 
in electronic  commerce.  Similarly,  recent  international  agreements  to  eliminate  tariff 
(ITA)  and  non  tariff  barriers  (MRA)  should  rapidly  bring  down  the  cost  of  key 
Information  Technology  products, encourage the take up of electronic commerce and 
reinforce  European  competitiveness.  Removing  capacity  bottlenecks,  and  providing 
high  bandwidth  infrastructure  is another  challenge  for  Europe  -  a challenge  actively 
addressed both by the private sector and by the Community. 

Ensuring interoperability  in a competitive environment  is another powerful  incentive. 
The  Commission  is  actively  promoting  global  interoperability  in  such  key  areas  as 
secure technologies  and payment  systems and  giving special  importance  in a number 
of R&D programmes  to electronic  commerce to ensure wide  availability  and ease  of 
use of key technologies and systems. 

III.  CREATING A FAVOURABLE REGULATORY  FRAMEWORK 

The Single Market framework  has proved its worth for traditional  forms of businesses. 
It must be now made to work  for electronic commerce. Building  trust and  confidence 
among businesses and consumers implies the deployment of secure technologies (such 
as  digital  signatures,  digital  certificates  and  secure  electronic  payment  mechanisms) 
and of a predictable legal and institutional framework  to support these technologies. In 
order to allow for electronic commerce operators to reap the frill benefits  of the Single 
Market,  it  is  essential  to  avoid  regulatory  inconsistencies  and  to  ensure  a  coherent 
legal  and regulatory  framework  for electronic  commerce at EU level. This should  be 
based on the application of key Internal Market principles. 

Regulatory  responses,  where  appropriate,  need  to  be  addressed  at  every  step  of  the 
business  activity, from the establishment  of  business, to the promotion  and  provision 
of  electronic  commerce  activities, through  ccnclusion  of  contracts,  to  the  making  of 
electronic  payments.  In  parallel,  a  number  of  key  '"horizontal"  issues  affecting  the 
entire electronic commerce activity, need to be addressed. These include data security, 
protection  of  intellectual  property  rights  and  conditional  access  services,  privacy,  as 
well as a clear and neutral tax environment. 

Considering  the  essentially  transnational  nature  of  electronic  commerce,  global 
consensus  needs  to  be  achieved.  The Commission  will  actively  pursue  international 
dialogue,  involving  government  and  industry,  in the  appropriate  multilateral  fora,  as 
well  as  bilaterally  with  its  main  trading  partners.  This  includes  international 
cooperation  to  fight  against  organised  transnational  crime  on  new  communication 
networks (e.g. P8). 

At 

IV.  PROMOTING A FAVOURABLE BUSINESS ENVIRONMENT 

Promoting a favourable business environment will involve reinforcing  awareness and 
confidence in electronic commerce for customers, as well as encouraging best practice 
among European businesses (particularly  through SME programmes, support actions, 
and R&D and G7 pilot  schemes). In parallel, public administrations  will  have a key 
role to  play  through their procurement  power and their early  implementation  of key 
electronic commerce technologies. In the future, strong synergies between "electronic 
commerce" and "electronic administration" should be actively encouraged to develop, 
for the benefit of all involved. 

In  summary,  the  present  Initiative  proposes  a  comprehensive  set  of  actions  in  the 
specific field of electronic commerce -  a field crucial for Europe's competitiveness on 
world's markets. These specific actions must be considered in the wider framework of 
Information  Society  initiatives- and, in particular, will be integrated into the Rolling 
Action Plan for the Information Society. 

The political objective of the Commission is to implement this coherent framework of 
technological,  regulatory  and  support  actions,  as  a  matter  of  urgency,  by  the  year 
2000. 

INTRODUCTION 

1.  The  aim  of  this  Initiative  is  to  encourage  the  vigorous  growth  of  electronic 
commerce  in  Europe.  In  the  Communication  "Putting  Services  to  Work"1  the 
fundamental 
importance  of  electronic  commerce  was  emphasised,  as  was  the 
Commission's commitment to make Europe the heartland of electronic commerce. 

2. This Communication  builds on the Commission's work on the Information  Society 
to date2 and in particular upon the Rolling Action Plan3. It provides a coherent policy 
framework  for  future  Commission  actions  in  the  field  of  electronic  commerce,  and 
seeks to raise awareness and stimulate dialogue between all parties at all levels. 

3. The expansion of electronic commerce will be market-driven. Europe is well placed 
to capitalise on the global business opportunities now opening up. The completion  of 
the  Single  Market,  the  development  of  Europe's  know-how  and  skills,  and  the 
introduction of the Euro create the strengths for the European economy  and  European 
businesses  to  be  at  the  forefront  of  the  emerging  global  electronic  marketplace.  The 
challenge  is  to  promote  widespread  adoption  of  electronic  commerce  as  an  integral 
part of the European way of doing business. 

4. This Initiative builds on the particular characteristics of European business and the 
diversity of its social and cultural fabric to present a distinctive and coherent European 
approach to the development  of electronic commerce in the global  market  place. The 
key elements of the Initiative are the following: 

•  Promote the technology and infrastructure  needed to ensure the competitiveness of 
the  European  electronic  commerce  industry,  and  put  in  place  structures  that  will 
provide  efficient  access  systems  for  existing  and  potential  users.  This  will  be 
pursued  by  ensuring  the  effective 
implementation  of  a  fully  competitive 
telecommunications  market  and by harnessing  and refocusing  R&D efforts  so that 
Europe's  high  level  of  scientific  and  technological  capability  can  be  translated 
more successfully  into marketable products and services. It will also be ensured by 
encouraging  a  broad  consensus  on  standards  and  on  the  interoperability  of 
electronic market systems; 

•  Capitalise  on  the  Single  Market  by  ensuring  a coherent  regulatory  framework  for 
electronic commerce in Europe and in wider global markets. This framework  needs 
to  boost  the  trust  and  confidence  of  businesses  for  investments  and  consumers  to 
make  use  of  electronic  commerce  by  dismantling  remaining  legal  and  regulatory 
barriers and preventing the creation of new obstacles. 

CSE(96)6final  of 27 Nov 96 

2  In particular: the Communications "Standardisation  and the Global  Information  Socicty"(COM(96)359final  of 24 July 96); 
"Learning  in the Information  Society - Action  Plan for a European education  initiative (COM(96)471 of 2 October  1996); 
"Illegal  and Harmful  Content on the Internet" (COM(96)487 of  16 Oct 96);; "Cohesion and the Information  Society" 
(COM(97)7 of 22 Jan 97; and the Green Papers "Living and Working in the Information  Society" (COM(96)389 of 24 July 96); 
"The Protection of Minors and Human Dignity  in Audiovisiual  and Information  Services"(COM(96)483  of 16 Oct 96). 
^"Europe at the Forefront  of the Global Information  Society:  Rolling Action Plan" (COM(96)607of 27 Nov 96); 

a  Foster a favourable  business environment for  electronic commerce by promoting 
adequate skills, and by making consumers and industry aware of the opportunities 
offered by electronic commerce. This will be realised through training, information 
and  demonstration  projects;  by  exploiting  synergies  between  government  and 
industries; and by leveraging specific European strengths, in terms of technologies, 
markets, linguistic and cultural diversity. 

G  Work  towards  global  consensus  from  a  common  European  position  to  ensure 
effective  participation in current international cooperation and negotiation. Europe 
should  identify  its  own  strengths  and  interests  and  argue  accordingly  in  the 
international forums and groups best suited for mis purpose. 

This  Initiative  provides  a  coherent  framework  for  these  mutually  re-eriforcing 
technological,  regulatory  and  support  actions  to  facilitate  the  development  of  the 
electronic commerce market whilst adequately safeguarding public interest objectives. 
The political objective of the Commission is to implement mis coherent  framework, 
as a matter of urgency, by the yes»- 2000. 

CHAPTER 1:  THE ELECTRONIC COMMERCE REVOLUTION 

5.  Electronic  commerce  is  about  doing  business  electronically.  It  is  based  on  the 
electronic  processing  and transmission  of  data,  including  text, sound  and  video. It 
encompasses  many  diverse  activities  including  electronic  trading  of  goods  and 
services, on-line delivery of digital content, electronic fund transfers, electronic share 
trading,  electronic  bills  of  lading,  commercial  auctions,  collaborative  design  and 
engineering,  on-line  sourcing,  public  procurement,  direct  consumer  marketing  and 
after-sales  service.  It  involves  both  products  (e.g.  consumer  goods,  specialised 
medical  equipment)  and  services  (e.g.  information  services,  financial  end  legal 
services);  traditional  activities  (e.g.  healthcare,  education)  and  new  activities  (e.g. 
virtual malls). 

ELECTRONIC COMMERCE: THE INTERNET REVOLUTION 

6. Electronic commerce is not a new phenomenon. For many years companies have 
exchanged business data over a variety of communication networks. But mere is now 
accelerated  expansion and radical changes, driven by the exponential  growth of the 
Internet.  Until  recently  no  more  than  a  business-to-business  activity  on  closed 
proprietary networks, electronic commerce is now rapidly expanding into a complex 
web of commercial activities transacted on a global scale between an ever increasing 
number of participants, corporate and individual, known and unknown, on global open 
networks such as the Internet. 

Table 1: For traditional electronic commerce the'network is a means to  move data: 
for  Internet electronic commerce,  the network is the market. 

TRADITIONAL  E-COMMERCE 
business-to-business only 

closed  "clubs ", often industry specific 
limited number  of corporate partners 
closed proprietary  networks 
known and trusted partners 
security part  of network design 
THE MARKET IS A CLUB 

I  INTERNET  E-CQMMERCE 

business-to-consumers 
business-to-business 
business-to-public  administration 
user-to-user 
open marketplace, global scale 
unlimited number of partners 
open, unprotected networks 
known and unknown partners 
security and authentication  needed 
j THE NETWORK IS THE MARKET 

7.  Electronic  commerce  covers  mainly  two  types  of  activities:  indirect  electronic 
commerce  -  the electronic  ordering  of tangible  goods, which  still  must  be  physically 
delivered  using  traditional  channels  such  as  postal  services  or  commercial  couriers; 
and  direct  electronic  commerce  -  the  on-line  ordering,  payment  and  delivery  of 
intangible  goods  and  services  such  as  computer  software,  entertainment  content,  or 
information  services  on  a global  scale.  Both direct  and  indirect  electronic  commerce 
offer  specific  opportunities. Both are often  undertaken by the same companies  -who, 
for  example,  sell  software  on-line  as  well  as  off  the  shelf.  Indirect  electronic 
commerce  is,  however,  dependent  on  a  number  of  external  factors,  such  as  the 
efficiency  of  the  transportation  system.  Direct  electronic  commerce  -  which  enables 
seamless, end-to-end electronic transactions across geographical boundaries -  exploits 
the full potential of global electronic markets4. 

THE NEXT GENERATION MARKETS 

8.  Electronic  commerce,  of  course,  is  not  limited  to  the  Internet.  It  includes  a  wide 
number  of  applications  in  the  narrowband  (videotex),  broadcast  (teleshopping),  and 
off-line  environment  (catalogue  sales on  CD-ROM), as well  as proprietary  corporate 
networks  (banking).  However  the  Internet,  with  its  robust  and  network-independent 
protocols,  is  rapidly  federating  different  forms  of  electronic  commerce.  Corporate 
networks  are  becoming  Intranets.  At the  same  time, the  Internet  is  generating  many 
innovative  hybrid  forms  of  electronic  commerce  -  combining,  for  example,  digital 
television  infomercials  with  Internet  response  mechanisms  (for  immediate  ordering), 
CD-ROM  catalogues  with  Internet  connections  (for  content  or  price  updates),  and 
commercial  Web  sites  with  local  CD-ROM  extensions  (for  memory-intensive 
multimedia demonstrations). 

9. Electronic  commerce  is an emerging  market.  In this fast  moving  and  highly  fluid 
environment,  we  are  seeing  the  development  of  a  wide  array  of  innovative  virtual 
businesses,  markets  and  trading  communities.  Companies  are  now  routinely 
outsourcing  over  the  Internet  functions  such  as  order  fulfilment  and  shipping  to 
distributors  which  specialise  in  such  services.  Distributors  themselves  are  "going 
virtual",  outsourcing  the  physical  warehousing  and  movement  of  goods  to  logistics 

* The Minitel experience in France shows that "intangible" goods and services companies initially stand as the main 
beneficiaries  of online commerce  development. 

specialists such as commercial courier companies5. Buyers, sellers and intermediaries 
are  forming  industry-specific  Internet  markets  in  such  diverse  fields  as  real  estate, 
automobile  parts  and  construction  equipment.  Similarly,  global  manufacturing 
industries, such as automobile, computers and aerospace, are actively integrating their 
supply chains through the Internet. 

10. New functions are now being created. Innovative virtual middlemen are providing 
value-added  services  -  such  as  brokering,  search  and  referral  -  to  businesses  and 
consumers. Catalogue aggregators offer buyers "one-stop shops" to select products at 
the  best  price  from  many  niche  merchants.  Classified  advertising  supersites present 
single points of access to scores of other sites carrying advertisements.  Government-
sponsored  gateways,  such  as  the  United  Kingdom's  Department  of  Trade  and 
Industry's  Trade  UK  website6,  provide  a  single  path  to  large  numbers  of  selected 
companies trading on the Internet. Network operators, barks and computer companies 
are  generating  new  revenues  in  their  "hosting  business" -  offering  turnkey  virtual 
store-fronts and virtual malls. 

11.  The  era  of  the  Web  as  a  gift  economy  is  ending.  New  forms  of  individual  to 
individual  commerce  are appearing,  as  users themselves  can charge  small  sums  for 
content  they  publish  on  the  Web.  Similarly,  commercial  publishers  can  now  sell 
information on the Web " by the sip, rather than by the gulp", page by page, article by 
article,  photograph  by  photograph.  The  very  small  payments  for  such  services 
generate  new  revenue  streams,  maximise  the  use  of  archives,  and  encourage 
widespread content development. 

THE OPPORTUNITIES FOR EUROPE 

12.  Electronic  commerce  offers  enormous  opportunities  for  Europe.  It  is  estimated 
that electronic  commerce  revenues on the Internet may  increase to 200 billion ECU 
world-wide  by  the  year  20007.  This  revolutionary  growth  will  lead  to  profound 
structural  changes.  Sectors  such as retail  and distribution with 20  million  employed 
and tourism with 6 million employed, will need to adapt to exploit these opportunities, 
expand  existing  businesses  and  launch  new  ones.  Some  existing  services  will  be 
substituted by new ones. Significant efficiency  gains will be realised. 

13.  As  a result, electronic  commerce  will  have considerable  impact  on the structure 
and operations of the labour market. Further analysis  is needed to  fully  assess  these 
changes.  Already  at  this  stage  it  is  apparent  that  new  employment  potential  will 
principally  be  in  information-based,  high-value  services.  Training  and education  for 
these new skills will be needed. Faced with intense, global competition in a borderless 
digital environment, we must ensure that these new jobs are created and maintained in 
the European Single Market. 

5  The most successful  Internet bookstores and music stores in Europe and in the US are thus truly "virtual companies": orders 
and shipments are made directly from publishers' warehouses, and providers' databases are fully integrated with transportation 
companies'. 
6  See  http://www.trackuk.com. 
1  Source ActivMedia, Romtec, in European Information Technology Observatory 97. 

14.  In  Europe  electronic  commerce  already  offers  considerable  incentives  for  both 
established  and  new  players.  SMEs  are  capitalising  on  the  unprecedented 
opportunities to access global markets  which the World  Wide Web offers.  Similarly, 
large  economic  sectors,  such as the distance  selling  industry  in Europe,  are actively 
integrating the Internet into their marketing and order-fulfilment  strategies. Electronic 
commerce offers  improved transaction management and enhances business  efficiency. 
It brings  increased  responsiveness  and accountability  -  as well as cost  reductions. It 
lowers  barriers  to  entry,  enlarges  existing  markets  and creates  whole  new business 
areas for knowledge-based  intangible products -  potentially  one of Europe's  greatest 
strengths. 

15.  Consumers  also  stand  to  gain  significantly.  Electronic  commerce  revolutionises 
the  relationship  between  consumer  and  provider.  The  consumer  benefits  from 
increased  choice by being able to compare and choose instantly  from  a wide range of 
offers.  Specialised  products  are increasingly  available.  Lower  prices  are possible  as 
overheads and "bricks and mortar" costs fall and efficiency  improves. A personalised, 
one-to-one  relationship  is replacing  traditional  mass-marketing  and  mass-distribution 
techniques, bringing more responsive service. 

16.  By  its  very  nature,  electronic  commerce  is  transnational  and  encourages  cross-
border ordering and delivery of goods and services. It directly  stimulates  competition 
in  the  Single  Market.  The  Single  Market,  in  turn,  offers  electronic  commerce  the 
prospect  of  a  critical  mass  of  businesses  and customers  across  national  borders.  In 
addition,  electronic  commerce  gives  peripheral  regions  new  opportunities  for 
accessing main markets . Electronic commerce represents, therefore, a potentially vital 
factor for cohesion and integration in Europe. 

ELECTRONIC  COMMERCE:  INTERNATIONAL  COMPARISONS 

17. The opportunities  electronic commerce offers  have all too frequently been  seized 
most energetically by Europe's main competitors. In the US, the Internet is fostering a 
thriving  Internet  core  economy,  creating  new businesses, new revenue  streams, and, 
more importantly, new jobs. Traditional  economic sectors, such as the travel  industry 
or catalogue business are migrating substantial parts of their commercial activities on 
line. 

Table 2: New business in the Internet: initiatives and innovations. 
Internet commerce in the US is building on a specific structural strength: innovative micro-enterprises.  The 
US is already boasting more than 250.000  "cyber companies " using the Internet commercially in a variety of 
ways. 
In  the  US, travel services and flower  distribution are particular  success stories.  Travel services currently 
amount to more than half of electronic commerce. The current market leade, launched in October  1996, is 
already claiming 250.000 users. There are nearly a thousand Internet flower  distributors on the Web, with the 
market leader boasting $ 30 millions in sales in  1996. 
In Europe, the direct marketing industry, which represented revenues of ECU 37 billion in 1995, is vigorously 
embracing the Internet. For example, one of the largest mail order companies in Europe, claimed electronic 
commerce sales of DM 400 million in 1996.  Similarly the largest supermarket chain in the Netherlands offers 
an innovative  "Internet teleshopper " service. 
Similarly, new businesses are emerging in Europe in such strategic areas as electronic commerce tools and 
technologies.  Success  stories  include, for  example,  the  world  leader  in  smart  card  technology, a  secure 
electronic payment pioneer, and a market leader in the Internet secure "virtual storefront " business. 

18. This is a crucial  area for  future  growth and competitiveness. Driven by  corporate 
players, Internet  commerce  in the US is also drawing  strength from  a dense  network 
of  micro-companies.  Ideally  suited  to  the  Internet  environment,  and  enjoying 
essentially  the  same  access  to  world  markets  as multinational  corporations,  some  of 
these start-ups  claim  impressive  growth rates and profitability8.  At this  stage, the  US 
has built a substantial  lead  over Europe. A similar  lead  is opening up  in the strategic 
sector  of  electronic  commerce  tools-  products  and  technologies  which  underpin  the 
future  development  of  electronic  commerce.  Similarly,  Japan  and  the  Asia/Pacific 
region  also  are  rapidly  catching  up.  Spurred  by  industry  and  government,  these 
countries are enjoying  huge growth in Internet connectivity sud electronic commerce. 
Based  on  today's  growth  rate  and  investments,  they  could  rive! Europe  in  terms  of 
electronic commerce revenues by the year 20009. 

MARSHALLING  EUROPE'S  STRENGTHS 

19. Recent  figures  indicate that  in some Member  States Internet commerce usage has 
caught  up  with,  and  sometimes  overtaken,  the  US.  Finland  and  the  Netherlands  are 
now  among  the  most  dynamic  on-line  markets  in  the  world10.  In  this  highly 
competitive environment, Europe can and must marshal its specific strengths. 

Europe  has  a  strong  base  in  technology  and  infrastructure.  It  has  powerful 
telecommunication  operators  (incumbents  as  well  as  new  players),  highly  reliable 
basic infrastructure,  and early deployment of advanced digital networks,  Commitment 
to standardization, exemplified  by the success of industry-driven  standards such as the 
GSM  and  the  DVB. is another  crucial  asset.  So  is Europe's  commercial  advances  in 
key  electronic  commerce  technologies  such  as  smart  cards  and  intelligent  agents. 
Content  development  is  another  of  Europe's  greatest  strengths.  Content  ~ computer 
is  the  very  essence  of 
software,  business  information,  video  entertainment  - 
immaterial  electronic  commerce.  European  companies,  in  particular  publishing  and 
multimedia  industries,  are  harnessing  their  considerable  resources  and  know-how  in 
the  global  electronic  information  markets.  Similarly,  highly  innovative  SMEs  are 
in  specialised  markets  such  as  multimedia 
positioning  themselves  successfully 
production and multilingual  content  localisation.  Europe also has  a competitive retail 
sector,  with  adapted  product  ranges  and  an  in-depth  knowledge  of  the  various 
consumer tastes around the continent, a strength which can be leveraged too. 

Furthermore, the ability to trade electronically  in a single currency -  the Euro -  across 
the  world's  largest  single  market  will  give  European  businesses  considerable 
competitive  advantages. Cross-border price transparency  resulting from the Euro  will 

8  A recent market survey of  1.100 Web based firms suggested that over 30% were profitable after a year, and that 30% more 
expected to be profitable within two years. Reported profit margins of twenty per cent and above are common (Figures from 
ActivMedia, reported in Business  Week, 23/9/1996). 
" Source: Gartner Group 
'" The Netherlands is now one of the most developed electronic commerce markets in the world, with high PC penetration 
(38% of households), high use of Internet (22% of PC users have access to Internet, against  16% in the US, and  12% in 
Germany), and high use of electronic commerce (33% of Internet users use it to buy online, against 22% in the US). Source: 
International  Data Corporation/Link 

6 

stimulate  the  use  of  electronic  commerce;  conversely,  electronic  commerce  will 
facilitate the transition to the euro. 

20.  Europe  must  tap  the  tremendous  power  of  the  entrepreneurial  process  and the 
force  of the  market.  The ability  of the  Community  and its  Member  States  to  steer 
developments  is  particularly  important:  if  our  companies  are to  succeed  in  today's 
competitive global electronic commerce market, they need an optimal environment to 
operate in. 

This  means  competitive  telecommunications,  the  availability  of  standards  and 
interoperable  solutions,  and  focused  R&D.  A  sound  and  flexible  regulatory 
framework  which  generates  confidence  for both business and consumers  and ensures 
full  and unlimited access to the Single Market is an essential key to Europe's success. 
Such  a regulatory  framework  will  be a major  competitive  advantage  in itself.  Steps 
must  also  be taken  to  improve  the business  environment:  to exchange  best-practice, 
facilitate  access to venture capital and stimulate training. Ultimately,  global  solutions 
must  be  found.  The  Community  should  be  in  the  lead  in  exploring  and  offering 
solutions at international  level. The changes described and the actions to be taken are 
developed  in  the  next  chapter.  They  are  ambitious.  And  they  will  take  effort  and 
political  will  to  carry  through.  But  if  they  succeed,  Europe  will  be  well  placed  to 
become the heartland of electronic commerce. 

THE  NEED FOR GLOBAL CONSENSUS 

21.  Electronic  commerce  is  inherently  a  global  activity.  Improved  access  to  global 
markets  is accompanied  by the challenge from other  parts of the world.  Multilateral 
dialogue,  involving  governments  and  industry,  is  currently  being  pursued  in  many 
forums.  The private  sector  has been  playing  a  pioneering  role,  for  example,  in the 
process  leading  to  landmark  global  agreements  such  as the Information  Technology 
Agreement  (ITA) and the Mutual Recognition Agreements on conformity  assessment 
(MRAs).  With  the  successful  conclusion  of  the  World  Trade  Organisation  (WTO) 
negotiations  on services  (1993) and telecommunications  (1997), the Community has 
committed  itself,  together  with  Member  States,  to  the  opening  of  most  electronic 
commerce activities. Any European action on electronic commerce therefore has to be 
compatible with those WTO commitments. 

At  the  same  time,  the  Community  will  continue  to  fight  trade  barriers,  in  order  to 
secure  access  to infrastructure  and services  in other  countries. This  will  be achieved 
by  enforcing  multilateral  commitments  made  by  the  European  Union's  partners  in 
WTO. Many trade issues specific to electronic commerce will also need to be pursued 
at  a  bilateral  level,  in  particular  with  the  US. In  this  perspective,  the  New Trans-
Atlantic  Agenda,  the Information  Society  Dialogue  and the Trans-Atlantic  Business 
Dialogue will continue to play a major role. 

22.  An issue of growing  concern  is the challenge  posed  by the emergence  of cyber 
crime,  such  as  electronic  money  laundering,  illegal  money  gambling,  malicious 
hacking,  or  copyright  infringement.  International  co-operation  is  already  well 

advanced  in a number  of key  areas, such as the fight  against  organised transnational 
crime  on  new  communication  networks.  Faced  with  new  forms  of  high  technology 
and  computer  crime  on  global  networks11  (reported  criminal  hacking  cases  are 
doubling every year), governments have responded vigorously. 

In  Europe  (Europol),  as  well  as  in  the  wider  international  environment  (P8), 
specialised  task  forces  have  been  set  up,  and  transborder  operational  co-operation 
reinforced  in such key areas as the real-time "trap and trace" of on-line criminals and 
"search  and seize" of digital  evidence. Efforts  are similarly  being mads  to harmonise 
the  criminalisation  of  computer  offences  and  avoid  digital  havens.  A  high  level 
Group,  set  up  following  the  Dublin  Council,  is  finalising  an  Action  Plan  to  fight 
cybercrime. These efforts  are crucial to reinforce  trust and confidence  in transnational 
electronic commerce. 

4 

j| 

CHAPTER 2:  ENSURING ACCESS TO THE GLOBAL MARKETPLACE: 

INFRASTRUCTURE, TECHNOLOGY AND SERVICES 

The  widespread  adoption  of  electronic  commerce  requires  efficient,  affordable  and 
widely  available  telecommunications 
technologies  and  services. 
Europe must match the cost, capacity, access, choice, security and user-friendliness  of 
such facilities throughout the world. 

infrastructures, 

MAXIMISING THE EFFECTS OF TELECOMMUNICATIONS  LIBERALISATION 

23.  A  fully  competitive  European  telecommunications  market,  implemented  through 
effective  telecommunications  liberalisation  will lower telecommunications  tariffs  and 
act  as  a  major  incentive  to  the  development  of  electronic  commerce  in  Europe. 
Comprehensive legislation is now being implemented by Member States to ensure  full 
competition  in  all  business  sectors  from  1  January  1998.  By  fostering  greater 
competition  between established  operators and new players alike,  telecommunication 
liberalisation  is  already  leading  to  lower  telecommunication  prices  and  to  the 
introduction  of more flexible  tariff  schemes  for  businesses  and private  on-line users. 
As  a  result,  Internet  use  is  already  significantly  higher  in  the  most  competitive 
markets, and so is the take-up of electronic commerce. 

24.  In  the  wider  international  context,  the  recently  concluded  WTO  Agreement  on 
Basic Telecommunications  represents  a major  landmark. This Agreement  contributes 
significantly  to the emergence of a global marketplace, since it contains  commitments 
from  69  countries  on  market  access  and  national 
treatment.  It  covers  all 
telecommunications  services, regardless of the technological  means used  for  delivery 
of  those  services.  Most  countries  have  also  underpinned  such  commitments  by 
regulatory  measures. The Commission will work with the EU Member  States, as well 
as  with  its  trading  partners,  towards  the  full  and  timely  implementation  of  this 
Agreement which will enter into force by  1  January  1998. 

The US Federal Trade Commission and the Gendarmerie Royale du Canada each maintain  Web sites to inform  users of 

various types of illegal schemes and abuses on the Internet. See  http://www.ftc.gov and http://www.rcmp-
grc. gc. ca/html/scams-f.htm 

25.  Regional  disparities in the cost, quality  and accessibility  of electronic  commerce 
infrastructure  and  services  must  be  reduced  to  allow  full  access  for  remote  areas  to 
global  markets and to overcome  regional  isolation.  Electronic  commerce  provides  an 
important  impulse  to  revitalising  regions  and  to  renewing  and  sustaining  local 
services.  The  widespread  availability  of  electronic  commerce  infrastructure  at  an 
attractive  price  is  required  if  SMEs  are  to  fully  exploit  the  opportunities.  However, 
significant  regional  disparities  may  remain  across  Europe.  Market  forces  alone  may 
not close these gaps. This situation will have to be monitored  closely  in the  evolving 
context  of  the  Information  Society.  The  Commission  has  addressed  this  issue  in  its 
Communication  on  "Cohesion  and  the  Information  Society"12  and  will  continue  to 
seek to ensure that the enterprise sector is consulted to find effective  solutions. 

MAXIMISING  THE  BENEFITS  OF  THE  LIBERALISATION  OF 
TECHNOLOGY  MARKETS 

INFORMATION 

26.  Recent  international  agreements  to  eliminate  tariff  and  non-tariff  barriers  on 
products  in  the  area  of  information  and  communication  technologies  should  rapidly 
bring down costs in particular of the basic tools (computers, software, networking, CD 
Roms) and directly stimulate the take up of electronic commerce. 

The Ministerial  Declaration  on  Trade  in  Information  Technology  Products  agreed  in 
December  1996 provides for the expansion of world trade in information  technology. 
As  a  result,  the  recently  adopted  Information  Technology  Agreement  (ITA),  which 
covers  more  than  90%  of  world  trade  in  IT  products,  provides  for  the  gradual 
élimination of tariffs  on these key products for electronic commerce by thz year 2000. 

Similarly, the Mutual Recognition Agreements of conformity  assessment  (MRA) will 
contribute  significantly  to  the  elimination  of  non-tariff  barriers  on  IT  products. 
Extending  the  Single  Market  principle  of  mutual  recognition  into  the  global 
environment,  the MRA  guarantees  the recognition  of certification  procedures  carried 
out  in  the  exporting  country  -  which,  in  turn,  should  substantially  reduce  costs. 
Welcomed  by  European  IT  and  ITC  industries,  both  agreements  will  strengthen  the 
entire  electronic  commerce  sector,  directly  benefiting  European  businesses  and 
consumers.  The  Commission  will  work  towards  the  full  implementation  of  these 
agreements,  and  ensure  that  respective  commitments,  concerning  in  particular  tariff 
schedules, will be met. 

REMOVING  CAPACITY  BOTTLENECKS 

27.  Europe  must  take  steps  to  ensure  that  a  high  bandwidth  infrastructure  is  put  in 
place in order to ensure that consumers and businesses take full  benefit of the ongoing 
technological  developments which, inevitably, lead to ever increasing  needs for  more 
transmission  capacity.  The  private  sector  is  already  working  at  removing  capacity 

12  COM(97)7 of of 22 Jan 97. 

bottlenecks  in  some  Member  States13.  Telecammumcf^tioii  operators  are  heavily 
investing in Internet infrastructure  and services. 

The  Commission  will  pursue  a co-ordinated  European  approach  to  tackling  capacity 
bottlenecks  through  the  European  Union  R&D  programmes  in  information  and 
communication  technologies,  including  actions  in  the  Fifth  Framework  Programme 
and in the Trans-European Networks. This will involve setting-up an operational high 
speed  network  for  researchers,  complemented  by  facilities  to  test  technologies  and 
applications. The Commission will also facilitate'the  active involvement  of  Europe's 
industry and public bodies in global decision-making  on the evolution of the Internet. 
In  parallel,  to  promote  the  rapid  use  of  the  new  broadband  services,  education  and 
training initiatives will be developed for SMEs, schools and local authorities. 

of 

28.  The  future  competitiveness  of  European  industry  depends  on  the  sustained 
development 
telecommunications 
infrastructures.  Immediate action for the early development  and implementation  of an 
advanced,  high  capacity  Internet  infrastructure  based  on  terrestrial  and  satellite 
networks14 is essential15. 

high-performance 

information 

and 

ENSURING  INTEROPERABILITY  IN A COMPETITIVE  ENVIRONMENT 

29.  Should  the  present  trend  of  developing  incompatible  standards16  continue,  both 
businesses and consumers will be severely disadvantaged17.  There  is a risk that  users 
become  "locked  in"  specific  solutions.  Similarly,  it  may  be  difficult  to  carry 
transactions between mutually incompatible systems. Without interoperability, critical 
mass may be difficult  to achieve. Furthermore  secure technologies  aie also  necessary 
to  create  trust  in  information  security.  These  technologies  are  for  the  most  part 
available,  but  important  issues  of  commercial  or  technical  interoperability  remain  to 
be  solved,  while  ensuring  full  competition.  To  facilitate  interoperability  between 
various electronic  commerce  services, the  Commission  will  launch  a specific  actions 
on standardization projects for electronic commerce in June 1997. 

30.  New  forms  of  industry  collaboration  in  standardization  in  electronic  commerce 
have emerged.  Efforts  are already underway  at industry  level  (e.g. Financial  Services 
Technology  Consortium;  World  Wide  Web  Consortium18)  to  secure  de  facto 
interoperability  in  the  global  environment  for  a  wide  range  cf  key  electronic 
commerce  technologies  such  as  electronic  payment  systems'9.  Similarly, 
the 

'•* An example is Finland, where massive investments in Internet infrastructure by telecom operators (in particular a dense 
network of ATM networks) have virtually eliminated bottlenecks. 
14  C0M(97)..., EU Action Plan on Satellite Communications in the Information Society. 
^  The US government has allocated $100 million to the "Next Generation Internet Initiative" designed for high-bandwidth 
applications. 
'" The term 'standard' is used as meaning any formally or informally accepted technical specification  and not necessarily only 
documents adopted by a recognised standards body. 
' '  For example, in Europe there arc more thnii 20 mutually incompatible standurds for 'stored value' cards (cards storing 
money similar in concept to telephone cards) 
18  The World Wide Web (WWW) was invented at CERN, the European Laboratory for Particle Physics. 
'9  A consortium of  160 computer, telecommunications and content companies, half of them European, the WWW Consortium 
is currently working on a series of initiatives to ensure de facto  interoperability between existing technologies in the field of 
electronic payment systems (Joint Electronic Payment Initiative), digital signatures (Digital Signature Project). It is also 
working on innovative solutions in the field of content filtering (Platform for Internet Content Selection, or PICS), and of 
personal data protection (Privacy and Demographics Project). See  http://www.w3.org. 

10 

through  the  Memorandum  of 
Commission  has  been  encouraging  consensus 
Understanding  on Open  Access to Electronic  Commerce  for European  SMEs.20 The 
involvement of European industry and users in standardization and specification  work 
will be facilitated  through a system of flexible,  ad hoc, open workshops  at European 
level, preferably  within or in collaboration  with the European  standards bodies CEN, 
CENELEC and ETSI. This will  enable participants to anticipate and react quickly to 
fast-moving  global  developments.  Furthermore  steps  will  be taken  to  better  address 
user needs, in particular of SMEs, in standardization. 
31.  The  Commission  will  present  a  Communication  on a  European  standardization 
initiative  for  electronic  commerce.  This  Communication  will  identify  technical 
barriers for the take-up of electronic commerce and propose concrete steps to remove 
these  with  the  active  involvement  of  European  companies.  Furthermore,  the 
Commission  is  examining  regulatory  proposals  in  order  to  establish  a  procedure  to 
identify  and  select  publicly  available  specifications  for  the  support  of  Community 
policies. 

32.  The benefits  of electronic  commerce  will  only  be achieved  if  interoperability  is 
ensured  at  global  level.  The  European  Community  and  its  Member  States  have 
consistently  been  committed  to  international  standards,  and expect  its major  trading 
partners to act likewise. 

In order to further  promote international standardization, the Commission will host the 
global  standardization  conference  "Building  the  Global  Information  Society  for the 
21st  Century",  to be held  in October  1997 which  will  focus  on  interoperability  and 
standardization  for  the  Information  Society.  Particular  emphasis  will  be  put  on 
electronic commerce. 

MAKING  USER-FRIENDLY  ELECTRONIC  COMMERCE  SERVICES  AVAILABLE: 

EUROPEAN'R&D 

33.  To  improve  user-friendliness  and  create  opportunities  for  business  innovation, 
further  work is required based on strong user involvement. The aim is to offer  simple, 
user-friendly  solutions  to handling  each  stags  in the transaction  chain  electronically. 
This  will  facilitate  the  widespread  take-up  of  electronic  commerce,  especially  by 
SMEs  and  allow  them  to  get  started,  using  and  staying  up-to-date  with  electronic 
commerce  technologies.  The  Commission  contributes  to  overcoming  technological 
barriers  by giving  special  importance  in its relevant  R&D programmes  to  electronic 
commerce  and  bringing  related  work  together21.  The  first  steps  have  already  been 
taken  through  the launch  of an electronic commerce  call  for  proposals  in the  Esprit 
(Information  Technologies)  programme. The approach  is to pursue  a complementary 
mix  of research,  technology  development  and take-up  measures  so that  the business 
innovation process is comprehensively  supported. The opportunities  offered  by R&D 
in socio-economic issues need to be exploited too. 

20  Sec http://www.eto.org.uk/ltrade/mou/on the World-Wide Web. 
21  An inventory of electronic commerce related work in the Esprit (information technologies) ind ACTS (communications 
technologies) programmes can be found on (he World-Wide Web at http://www.cordis.lu/esprit/src/ecomproj.htm. 

13 

Electronic  commerce  appears  as  a  key  action  in  fee  "Creating  a  User-Friendly 
Information  Society"  programme,  proposed  as  part  ci 
the  forthcoming.  Fifth 
Framework  Programme22.  Technological  developments  £.id  take-up  promotion 
projects  in  European  Union  R&D  programmes  should  concentrate  on  providing  a 
wide range  of  interoperable,  compatible  electronic  commerce  building-blocks.  These 
could be for  services  such as payments, IPR management etc., to support  the  steps in 
the transaction  chain. They could equally address integrated solutions — for example, 
to  integrate  better  smart-card  technology,  mobile  communications  and  information 
appliances.  They  should  favour  technologies  which  minimise  the  need  for  personal 
data  and  thus  enhance  the  protection  of  the  right  to  privacy  of  consumers  (privacy 
enhancing technologies). User-friendly  access to information  must also be ensured (in 
particular  to  deal  with  information  overload).  Multilingualism,  including  on-line 
translation,  must  be  supported.  Full  use  must  also  be  made  of  multimedia  and 
knowledge-based  systems to simplify  the interface to the user and better support users 
with  different  characteristics.  As  indicated  in  the  Innovation  Action  Plan23,  other 
factors  besides  R&D  will  also  have to  be  addressed  to  create  an  environment  which 
fully  favours the exploitation of innovation. 

INTERNATIONAL  INDUSTRIAL  COOPERATION  m  INFRASTRUCTURE, TECHNOLOGIES 
AND  SERVICES 

34.  The  global  infrastructure  needs  to  be  harnessed  by  international  industrial  and 
technological  co-operation,  in particular in areas such as secure electronic  commerce, 
international  electronic  payments,  multilingual  support,  etc.  The  European 
Commission  has  already  undertaken  several  international  industrial  cooperation 
actions.  Projects  will  be  launched  during  1997  as  pari  of  the  Prague  Action  Plan 
involving Central and Eastern European countries, and in cooperation with non-Union 
Mediterranean  countries.  Particularly,  such  projects  help  Central  and  Eastern 
European  countries  in  their  preparation  for  accession  tc  the  EU.  International 
industrial cooperation  in electronic commerce with major  trading partners  such as the 
USA,  Canada,  Australia,  the  European  Economic  Area,  Israel  and  Japan  is  part  of 
bilateral  dialogue  and  Science  and  Technology  Agreements.  The  Commission  will 
also  strengthen  its  ongoing  international  cooperation  in  the  field  of  electronic 
commerce by promoting global pilot projects in the G7 Global Marketplace for  SMEs 
collaboration. 

CHAPTER 3: CREATING A FAVOURABLE REGULATORY FRAMEWORK 

The  pace  and  the  extent  to  which  Europe  will  benefit  from  electronic  commerce 
greatly depends on having up-to-date legislation that fully  meets the needs of business 
and  consumers.  The  objective  of  the  Commission  is  to  implement  the  appropriate 
regulatory  framework  by  the  year  2000.  The  existing  Single  Market  regulatory 
framework  has  proved  its  worth  for  traditional  forms  of  business.  It  must  now  be 
made  to  work  for  electronic  commerce  by achieving  two  complementary  objectives: 
building trust and confidence and ensuring full  access to the Single Market. 

22COM(97)142 
23  Innovation Action Plan COM(96)589 of 20 November 1996. 

12 

BUILDING TRUST AND CONFIDENCE 

35.  The  first  objective  is  to  build  trust  and  confidence.  For  electronic  commerce  to 
develop, both consumers  and  businesses  must be confident  that their  transaction  will 
not be intercepted or modified,  that the seller and the buyer are who they say they are, 
and  that  transaction  mechanisms  are  available,  legal  and  secure.  Building  such  trust 
and confidence  is the prerequisite to win over businesses and consumers to electronic 
commerce.  Yet many  remain  concerned  about the identity  and  solvency  of suppliers, 
their  actual  physical  location,  the  integrity  of  information,  the  protection  of  privacy 
and  personal  data24,  the  enforcement  of  contracts  at  a  distance,  the  reliability  of 
payments, the recourse for errors or fraud, the possible abuses of dominant  positions-
considerations which are heightened in cross-border trading. 

36. Secure technologies -  such as digital  signatures and digital  certificates  -  go some 
way  to  meeting  these  challenges.  Digital  signatures  enable  the  unambiguous 
confirmation  of  the  identity  of  the  sender  and  the  authenticity  and  integrity  of 
electronic  documents.  Unique  to  the  sender  and  unique  to  the  message  sent,  digital 
signatures  are  verifiable  and  non-repudiable.  Similarly,  the  exchange  of  digital 
certificates  ("Internet  ID  cards")  through  an  automatic  "digital  handshake"  between 
computers provides assurance that the parties are who they  say they  are, and  helps to 
assess whether the service provided and the goods or services delivered are genuine. 

Copyright  protection  mechanisms,  also  based  on  secure  technologies  such  as 
encryption  and  smart cards, ensure the protection  of digital  material  and  are a crucial 
factor  in  the  emergence  of  a  mass-market  in  electronic  content.  Also  based  on 
cryptographic  methods,  secure  electronic  payment  mechanisms  provide  the  final 
element of trust: the ability to pay and to be paid. Such secure technologies are for the 
most  part  fully  operational  and  commercially  available.  However,  the  necessary 
regulatory  and  institutional  framework  supporting  such  technologies  is  not  yet 
complete, particularly  in areas such as interoperability  and  mutual  recognition  across 
borders. 

ENSURING  FULL ACCESS TO THE SINGLE  MARKET 

37. The second objective is to ensure full  access for electronic commerce to the Single 
Market.  Given  its  size,  the  Single  Market  potentially  offers  businesses  a  "critical 
mass" of customers before  addressing further  global markets. However,  faced  with the 
new  challenges  posed  by  electronic  commerce,  Member  States  are  responding  in 
different  ways.  The  development  of  divergent  legislative  approaches  is  not  only 
ineffective  given  the  transfrontier  nature  of  electronic  commerce  but  also  risks 
fragmenting  the  Single  Market  and  thus  inhibiting  the  development  of  electronic 

24  Privacy  is a particular concern of consumers. According to the survey "Information Technology and Data Protection", 
Eurobarometer 46.1, January  1997, two thirds of respondents are worried about trails of personal data that are left behind when 
using digital  information networks. 
"•  Additionally, virtual shopping malls which operate across borders could become very dominant once they achieve a 
substantial  size. Some adaptation of retail legislation may be required. 

13 

commerce  in Europe. The proposed Transparency  Mechanism Directive26 is precisely 
targeted  at reducing the risk that new measures, by being different  from  one Member 
State to another, could restrict the free movement of Information  Society services. 

38.  However  important  it  is  to  avoid  regulatory  inconsistency  by  discouraging 
divergent  actions  at  national  level,  the  Union  must  also  ensure  that  a  coherent 
regulatory  framework  for  electronic  commerce  is  created  at  European  level.  Such  a 
regulatory  framework  will  inevitably  be  built  on  existing  Single  Market  legislation 
which  already  largely  creates  the  right  conditions  for  on-line  businesses.  As  part  of 
that  framework,  specific  measures  have  already  been  taken  to  respond  to  new 
developments.  They  include  the  recently  adopted  directives  on  data  protection27,  on 
the legal protection of data bases28 and on contracts negotiated  at a distance29; and the 
proposed  revision  of  the  "Television  without  Frontiers"  Directive30.  In  addition,  a 
number  of consultation  or policy documents  have been  issued  to stimulate  debate on 
various  policy  areas including  the  legal  protection  of encrypted  services31,  copyright 
and  related  rights32,  industrial  property33,  commercial  communications34,  public 
procurement35  and  the  protection  of  minors  and  human  dignity  in  audiovisual  and 
information  services36. 

THE  PRINCIPLES OF AN ELECTRONIC COMMERCE REGULATORY FRAMEWORK 

39.  The application  of  four  principles  will  provide  the  Union  with  an  adaptable and 
appropriate  framework  of legislation. 

No regulation for  regulation's sake: in many  cases, the free  movement  of  electronic 
commerce services can be effectively  achieved by mutual recognition of national rules 
and of appropriate self-regulatory  codes. This means that companies engaged  in cross-
border  business  operate  under  the  law  of  the  country  of  origin  ("home  country 
control"). Only where mutual  recognition  does not suffice  to remove obstacles  in the 
market  or  to  protect  general  interest  objectives,  will there  be a need  for  Community 
action  .  Any  legislative  action  should  impose  the  fewest  possible  burdens  on  the 
market and keep pace with market developments. 

26  Proposal  for an  European Parliament and Council Directive amending for the third time Directive 83/189/1-10 laying down 
a procedure for the provision of information in the field of technical standards and regulations,  COM (96) 392  final, 
30.08.19%. 
-  Directive 95/46/1 •'(' of the European Parliament and the Council on the protection of individuals with rejwrtls lo the 
moecssiug of personal data and the free movement of such data. ()J  1.281 23.11.1995 p.31 
"X  Directive  96/9/1 •'(' of the European Parliament and of the Council on the legal protection of databases OJ 1.77 27 0VI996 

*  Directive 97/7 ol the European Parliament and the Council ol  17 February  1997 on the protection ol consumers in respect of 
distance contracts (to be published in the Official  Journal). 
-  Proposal  for a European Parliament and Council Directive amending Council Directive 89/552/EEC on the coordination of 
certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television 
broadcasting activities. 
COM(95) 86 Final of 31.05.1995, O.J. C 185 of  19.07.95, p. 4. 
- ' Commission Green Paper "Legal Protection of Encrypted Services in the Internal Market", COM (96) 76 final. 06.03.96. 
32  Communication from the Commission "Follow-Up to the Green Paper on Copyright and Related Rights in the Information 
Society",  COM(96)568 final, 20.11.1996. 
3-  Questionnaire on "Industrial Property Rights in the Information Society". Version 5.0. September  1996. DG XV/E/3. 

_ Green Paper on "Commercial Communications  in the Internal Market", COM (96)  192 final. 08.05.1996. 
•*  Green Paper on "Public Procurement  in the EU: exploring the way forward", COM(96) 583 final - 27/11/96 

(keen  Paper on the "Protection of Minors and Human Dignity in Audiovisual and Information Services". COM (96) 483 

final 16.10.1996. 

14 

Any regulation must be  based on all  Single Market freedoms: electronic  commerce 
cuts across  a wide  range of cross-borders  activities.  Whether companies  engaged  in 
electronic  commerce  are providing one or several  goods and/or services,  freedom to 
do  so  -easily  and effectively-  must  be  at the  heart of  future  policies.  Equal  weight 
must be given to all the freedoms offered by the Single Market: the realisation of the 
free  movement  of goods, persons,  services  and capital  together with the freedom of 
establishment. Only in this way can the crucial objectives of coherence, predictability 
and operational simplicity be achieved. 

Any regulation must take account of business  realities:  in any electronic  commerce 
operation, a trader needs to set up business, to promote its products or services and to 
sell,  deliver  and  finance  them.  This  is  part  of  the  normal  process  of  trading  -  a 
commercial  chain. In many cases, legislation will not be necessary to tackle actual or 
potential problems. Where it does, it must seek to facilitate operations throughout the 
commercial  chain, for  it makes no sense to remove  barriers in only  one  part of that 
chain whilst leaving others untouched. 

Any  regulation  must  meet general  interest  objectives  effectively and  efficiently:  a 
Single  Market  for  electronic  commerce  will  not  develop  without  the  effective 
safeguarding  of  recognised  general  interest  objectives  such  as  privacy  or consumer 
protection  and  other  public  interests  such  as  wide  accessibility  to  the  networks. 
Without such protection there is a real risk that national regulatory borders will remain 
in place as individual Member States seek to safeguard the legitimate concerns of their 
citizens. 

THE ESSENTIAL FEATURES OF A REGULATORY APPROACH 

Based on these four principles, an appropriate regulatory response must be developed 
where  necessary.  In  some  cases,  responses  have  already  been  identified;  in  other 
cases, responses need to be found urgently. To ensure that electronic commerce  freely 
flows across national frontiers, different  legal issues need to be addressed at each step 
of business activity. 

From the establishment of the business .... 

40.  A  wide  range  of  regulations  at national  level  could  inhibit  the  establishment  of 
service  providers across frontiers.  These  include differing  professional  requirements, 
differing  prudential  and  supervisory  systems,  and  notification  or 
licensing 
requirements  (for  example  for  regulated  professions  or  financial  services).  The 
Commission  is  therefore  examining  how  best  such  obstacles  can  be  tackled  while 
respecting general interest objectives and will come forward with policy proposals. 

41. The new virtual environment also makes it more difficult to determine who are the 
contracting parties, where an electronic commerce operator is established and whether 
that  operator  is  complying  with  all  relevant  legal  conditions.  This  can  create  legal 
uncertainty about which Member State will be competent and about the applicable law 
in disputed cases.  It also complicates the application of  Single  Market principles, in 

15 

r 

particular  the  principle  of  country  of  origin  control.  The  Commission  will  examine 
these and related  issues to clarify  any areas of doubt or inconsistency  - including  the 
application  of  the  Rome  Convention37  and  the  Brussels  Convention38  in  the  new 
electronic context -and will work to improve consumers access to justice, in particular 
the possibilities for redress. 

To the promotion and provision of electronic commerce activities ... 

42.  Any  on  line  service  provider  or  company  establishing  a  Web  site  is  subject  to 
divergent  national  regulations  including  those  on  commercial  communications 
(covering  advertising,  direct  marketing,  self-promoticns,  sponsorship  and  pufcHc 
relations).  This  hampers  the  use  of  efficient  and  creative  cross  border  commercial 
communications  strategies and creates legal uncertainty.  As a foilow-up  to the  Grten 
Paper  on  Commercial  Communications,  the  Commission  will  come  forward  with 
detailed proposals to remedy actual or potential  difficulties. 

43.  At present Member  States apply certain restrictions to the marketing  of  particular 
financial  services  to protect  the public  interest.  The effect  of  such  restrictions  is that 
the  Single  Market  for  financial  services,  including  financial  services  provided 
electronically,  is  fragmented.  Before  the  end  of  the  year,  the  Commission  will  put 
forward  a  proposal  for  a  directive  on  financial  services  contracts  negotiated  at  a 
distance  which  will  seek  to  remove  obstacles  to  cross-border  provision  whilst 
safeguarding  consumer protection. 

Through negotiation and conclusion of contracts ... 

44.  A  Directive  on  contracts  negotiated  at  a  distance  which  covers  electronic 
transactions and a certain number of horizontal directives (on unfair  contract terms in 
consumer  contracts, on misleading  advertising) and sectorial  directives (on consumer 
credit, travel packages, timeshare) have been adopted. Furthermore  a proposal en  the 
sale of consumer  goods and associated  guarantees  is in the pipeline.  These  directives 
are establishing a minimum level of protection for consumers which is also applicable 
to electronic commerce transactions within the EU. 

45.  A number of Member  States'  rules governing  the formation  and  the  performance 
of  contracts  are  not  appropriate  for  an  electronic  commerce  environment  and  are 
generating  uncertainties  relating  to  the  validity  and  enforceability  of  electronic 
contracts  (for  example  the  requirements  for  written  documents,  for  hand  written 
signatures,  or  the  rules  of  evidence  that  do  not  take  into  account  electronic 
documents). The Commission will take concrete steps to address the problem  of how 
to eliminate barriers for the legal recognition of electronic contracts within the Single 
Market.  Furthermore,  as  regards  consumer  protection  in  the  field  of  electronic 
commerce,  this  point  shall  be  dealt  with  in  the  Communication  on  the  Consumer 
Dimension of the Information  Society. 

J  Convention on the law applicable to contractual obligations. Rome 1980. OJ L266,9.10.80 p.l. 
38  Convention on jurisdiction and enforcement of judgements in civil and commercial matters. Brussels  1968. OJ C97, of 11 
April  1983. 

16 

46. Bookkeeping, accounting and audit rules will also have to be adapted to electronic 
commerce and will have to allow, for example, for electronic verifications  without any 
paper  copies  or  for  electronic  invoices.  National  rules  could  develop  in  a  divergent 
way and threaten the Single market. The Commission will initiate discussions with the 
Member States in order to prepare appropriate action. 

... To the making and receipt of electronic payments. 

47. Electronic  commerce  will  not  develop  without  sound,  user-friendly,  efficient  and 
secure electronic payment systems. The Commission, the EMI and the Member  States 
are  currently  considering  the  appropriate  supervisory  framework  for  the  issuance  of 
electronic money. In the light of this discussion the Commission  intends to present by 
the  end  of  1997  (i.e.  the  target  date  for  completion  of  the  work)  a  proposal  for  a 
Directive  on  the  issuance  of  electronic  money,  so  as  to  ensure  the  stability  and 
soundness  of  issuers  of  such  payment  products.  This  will  contribute  to  boosting 
consumer  confidence.  Meanwhile,  the  Commission  envisages  modernising  and  up 
dating the Recommendation  of  1988 concerning payment  systems39 before  the middle 
of  1997 in order to provide guidance for the relationship  between  issuers and  users of 
all new means of payment (e.g. on liability, transparency and redress procedures). 

48. Compatibility between electronic payment systems, which is in the interest of both 
consumers  and  business,  will  mainly  rely  on  agreements  among  operators.  Such 
agreements  must  be  in  conformity  with  the  Community's  competition  rules.  To 
provide  guidance,  the  Commission  will  in  the  course  of  1998  issue  a  competition 
notice  which  will  clarify  the  application  of  competition  rules  to  new  means  of 
payments . 

49.  Fraudulent  use  and  counterfeiting,  which  is  a  serious  concern  for  means  of 
electronic payments, is only punishable in a minority  of Member  States. The financial 
industry and users have requested the Commission to take initiatives covering all non 
cash means of payment to improve the security of new payment systems. 

A  REGULATORY APPROACH THAT DEVELOPS APPROPRIATE HORIZONTAL POLICIES 

Ensuring Data Security and Privacy 

50.  The  use  of  strong  encryption  which  ensures  the  confidentiality  of  both  sensitive 
commercial  and  of  personal  data  is  one  of  the  foundation  stones  of  electronic 
commerce. Widely divergent national laws restricting the use, exportation  importation 
and offering  of encryption technologies and products are adding substantial barriers to 
the development of electronic commerce in Europe. The removal  of such cross border 
barriers  is  crucial  for  the  implementation  of  the  Single  Market  in  electronic 
commerce. The Commission will seek to develop a policy which will aim to guarantee 
the free  movement of encryption  technologies and products while safeguarding  public 
security  concerns.  The  Community  shall  work  at  international  level  towards  the 

Commission  Recommendation  of  17 November  1998 concerning  payment  systems, and in particular  the  relationship 

between  card-holder  and card  issuer. OJ 1.317 ol"24 November  1988. p.55. 

17 

removal  of  trade  barriers  for  encryption  products.  The  recently  adopted  OECD 
Cryptography  Guidelines constitute a first attempt to achieve international  consensus 
on this matter. 

51.  A more  specific  issue  is that  of digital  signatures  which  will  be the  subject  of a 
Commission initiative. This initiative will aim at ensuring a common legal  framework 
encompassing  the legal recognition of digital  signatures in the Single Market  and the 
setting up of minimum criteria for certification  authorities. World wide agreements on 
digital signatures will also be needed. 

52.  Key  amongst  confidence-building  measures  is  the  need  to  safeguard 
the 
individual's  and  a company's right to  privacy  while  avoiding  obstacles  to  the cross-
border  provision  of  electronic  commerce  services.  The EU  Framework  Directive  on 
the  protection  of  personal  data  meets  these  two  objectives.  It  remains  to  be  seen 
whether  further  regulatory  measures  may  be  needed  to  address  specific  issues 
emerging  from  the  developments  of  electronic  commerce.  In  particular,  privacy 
principles need to be safeguarded  in the area of electronic payment  systems, taxation 
and  copyright  management  systems.  The  Commission  will  pursue  a  WTO  initiative 
aiming at a multilateral agreement on trade related aspects of global information  flows 
whilst protecting the right to privacy and personal data. 

Establishing  Appropriate  Protection  for 
Conditional Access Services 

intellectual  Property  Eights  and 

53.  The protection of copyright and related  rights  is essential  for  the development  of 
electronic trade. The Commission  will take a legislative initiative to deal with certain 
aspects  of  copyright  and  related  rights40.  It  will  focus  on  on-line  communications, 
reproduction  and distribution  of protected  material. This will be flanked  by  adequate 
legal  protection  against  the  circumvention  of  anti-copy  devices  and  electronic 
management  systems.  The  two  international  Treaties  adopted  in  December  I99641 
under  the  auspices  of  the  World  Intellectual  Property  Organisation  (WIPO)  are 
essential  to  stimulate  and  facilitate  electronic  commerce  internationally.  The 
Community  shall aim for their early entry  into force.  Moreover, a successful  outcome 
of the present WIPO negotiations on the legal protection of the substantial  investment 
made  in  databases  will  constitute  a  further  milestone  in  facilitating  electronic 
commerce  world-wide.  The  work  on  this  issue  will  continue  in  the  framework  of 
WIPO, during the second  half of  1997 and the Commission  considers it of importance 
to adopt an international convention in the near future  on this topic. 

54. Trademarks are major  commercial  instruments  that  will  play an  important  role in 
the electronic  market place. However  in an open network  environment  the  trademark 
owner is faced  by severe difficulties  in controlling the legitimate use of his trademark. 
The Commission is now consulting interested circles about this and related  issues and 
will  take  appropriate  steps  to  resolve  conflicts  between  the  allocation  of  Internet 
domain  names  and  trademarks.  The  Commission  will  seek  to  ensure  that  European 

4 (' For further details see Communication  from the Commission "Follow-Up tc the Green Paper on Copyright and Related 
Rights in the Information Society", COM(96)568 final, 20.11.1996. 
41  The "WIPO Copyright Treaty" and the "WIPO Performances and Phonograms Treaty". 

18 

interests  are  duly  taken  into  account  in  the  reorganization  of  the  Internet  Domain 
Name  System (DNS). In the context of the WIPO Consultative Group on  trademarks 
and Internet domain names, the Commission  is actively contributing to the  definition 
of  internationally  acceptable  solutions,  such  as  on-line  arbitration,  mediation  and 
challenge panels. 

55.  A  secure  distribution  of  services  will  require  adequate  legal  protection  of 
conditional  access  services  across  the  Single  Market.  Many  services  will  use  some 
form  of encryption or other conditional  access system to ensure proper  remuneration. 
Service  providers  will  .need  to  be  protected  against  the  piracy  of  their  services  by 
illicit  decoders, smart  cards or other piracy  devices. The Commission  will propose  a 
directive  to  establish  an  equivalent  level  of  protection  for  service  providers  across 
Europe. 

Ensuring a clear and neutral tax environment 

56.  To  allow  electronic  commerce  to  develop,  it  is  vital  for  tax  systems  to  provide 
legal  certainty  (so that tax obligations  are clear, transparent  and predictable), and tax 
neutrality  (so  there  is  no  extra  burden  on  these  new  activities  as  compared  to  more 
traditional commerce).The potential speed, untraceability  and anonymity  of electronic 
transactions  may  also  create  new  possibilities  for  tax  avoidance  and  evasion.  These 
need to be addressed in order to safeguard  the revenue interests of governments and to 
prevent market distortions. 

57. Indirect taxation, and particularly VAT, is the area in which the Community  rules 
are  most  harmonised.  Electronic  trade  in  goods  and  services  clearly  falls  within  the 
scope  of  VAT,  in  the  same  way  as  more  traditional  forms  of  trade  do.  However, 
thorough analysis is needed to evaluate the possible impact of electronic commerce on 
present  VAT legislation  (on issues such as definition,  control  and enforceability)  and 
to judge if,  and to what extent, present legislation needs to be adapted, while ensuring 
tax  neutrality.  Adaptations  should  avoid  putting  excessive  burdens  on  small 
companies.  While  some  commentators  have  suggested  that  there  might  be  a need  to 
look at alternative taxes such as "bit tax"42, the Commission is of the opinion that this 
is not appropriate since VAT already applies to these transactions. 

58.  The  territorial  concepts  which  underlie  direct  taxation  systems  ("residence"  and 
the  "source"  of  income)  also  need  to  be  examined  in  the  light  of  commercial  and 
technological  developments.  As  with  indirect  taxation,  the  goal  is  threefold:  to 
provide legal certainty, to avoid undue revenue losses, and to ensure neutrality. 

59. The Commission and the Member States have recently decided to start an analysis 
of  the  impact  and  consequences  of  electronic  commerce  on  Customs  and  Indirect 
Taxation. The Commission will use the Taxation Policy Group to explore these issues 
at EU level with Member States. Further work at an international  level will be done in 
the OECD Committee on Fiscal  Affairs. 

42  "Interim Report of the High Level Group of Experts on the Social Aspects of the Information Society", 
hitp://www. ispo. cec. be/hleg/hleg. html. 

19 

WORKING TOWARDS A CONSISTENT GLOBAL REGULATORY  FRAMEWORK 

60.  At  present,  the  pioneers  of  electronic  commerce  are  operating  in  a  fragmented 
regulatory  environment  despite  the  fact  that  a  number  of  aspects  of  electronic 
commerce  are  already  covered  by  international  agreements  such  as  WTO/GATS 
(General  Agreement  on Trade in  Services)  and WIPO. As  in the case  of  the  Single 
Market existing and new national legislation in diverse areas (for example encryption, 
digital signatures, data protection and privacy, contract law, new electronic means of 
payments) can create trade barriers which will  hamper the development of electronic 
commerce  at a global  level.  Solutions  need to  be  found  to  provide  for  a consistent 
international regulatory framework for electronic commerce. 

Important  steps  have  already  been taken  in  a variety  of  different  international  fora 
such  as  WIPO,  WTO,  OECD  (Organisation  for  Economic  Cooperation  and 
Development),  the  World  Customs  Organisation,  UNCTAD  (United  Nations 
Conference  on Trade and Development),  UNCITRAL  (United  Nations  Commission 
on  International  Trade  Law)  the  Exports  Credits  Arrangement  and  the  Council  of 
Europe. 

Building  on  this,  the  Community  should  further  work  through  appropriate 
international fora and bilaterally with its major trading partners to establish a coherent 
global regulatory  framework. 

61.  An  International  Ministerial  Conference  on  "Global  Information  Networks: 
Realising  the  Potential"  will  be  organized  by  the  Commission  and  German 
Government in Bonn on 6-8 July 1997 which will address international policy-making 
amongst  others  for  electronic  commerce  with  a  view  to  adopting  a  Ministerial 
Declaration. 

CHAPTER 4: PROMOTING A FAVOURABLE BUSINESS  ENVIRONMENT 

A  further  challenge  facing  the  European  Union  lies  in  achieving  the  widespread 
adoption  of  electronic  commerce  by  consumers,  businesses,  and  public 
administrations. The awareness and confidence  of consumers and businesses needs to 
be  enhanced,  and  support  is  needed  for  the  development  of  relevant  skills  and 
widespread network literacy. SMEs, in particular, need to be encouraged to adopt new 
business  methods,  techniques  and  innovations.  Public  administrations  have  an 
important role to play by adopting a favourable attitude to electronic commerce. 

CONSUMERS: CREATING AWARENESS AND CONFIDENCE 

62.  Consumers have much to gain from electronic commerce when they  buy  goods 
and services from their own homes: a wider choice,  easier and more  comprehensive 
pre-purchase  information,  and potentially  lower prices. The Commission  has already 
indicated  in its three year action plan on priorities  for consumer policy  (1996-1998) 
the potential benefits which the development of the Information  Society will  bring to 
consumers. 

20 

The  Commission  will  prepare  a  Communication  on  the  consumer  dimension  of  the 
Information  Society  which  will  aim to  promote  consumer  access  to  the  Information 
Society,  including  new  consumer  skills  which  will  require  special  education  and 
training. 

63.  Consumers  need  to  have  confidence  in  the  electronic  commerce  process  itself. 
"Hard trust" in electronic commerce, through the use of secure technologies, needs to 
trade  and  consumer 
be  complemented  by  "psychological 
organizations  need to work together to boost this by the use, for  example, of  quality 
labels;  by  issuing  comparative  reports43;  or  by  the  endorsement  of  new  services  by 
trusted  commercial  brand  names  such  as  banks,  credit  card  companies,  or  network 
operators44. 

Industry, 

trust". 

Trust  can  also  be  encouraged  by  increasing  the  transparency  of  transactions  (for 
example,  concerning  the  identity,  origin  and  liability  of  the  supplier),  keeping  to  a 
minimum the personal data required from the consumer, and by making clear the legal 
status  of  any  information  provided.  Industry  can  also  increase  the  level  of  trust  by 
adopting  and  abiding  by  codes  of  conduct.  Ideally,  labelling  and  codes  of  conduct 
would  need  to  be  applied  at  a  European  or  global  level  to  win  mass  acceptance 
amongst  consumers  and  businesses  and  avoid  the  creation  of  new  barriers.  The 
Commission  encourages  the  creation  of  widely  accepted  quality  labels  and  codes  of 
conduct to increase trust and confidence  in electronic commerce. 

64. For consumers, the use of the Euro and electronic commerce should  simplify  and 
lower  the  cost  of  transactions.  The  Commission  will  therefore  encourage  pilot  work 
on quality  labels  for  electronic  payments  in the  future.  This could  guarantee  that the 
electronic  payment  service meets a set of minimum  quality  criteria (e.g. dual  display 
of  prices  pi as  automatic  conversion  between  Euro  and  national  currencies  without 
surcharge).  The  financial  industry,  consumer  representatives  and  public  authorities 
would together define  these criteria. Quality  labels could also be applied to electronic 
purses and other existing payment instruments, such as debit and credit cards. 

BUSINESS:  CREATING AWARENESS AND ENCOURAGING  BEST PRACTICE 

65. Small businesses need to understand the potential benefits  of electronic  commerce 
in  terms  of  cost  savings,  opening  up  of  new  markets  and  opportunities  for  new 
products and services. Awareness actions will build on the insights gained through the 
Commission's  Commerce  2000  pilot  programme,  the  consultation  process  on  the 
Green  Paper  on  Commerce  and  in  the  G7  context,  and  will  take  into  account  the 
limited  resources  available  to  SMEs  for  staff  training.  They  will  aim  to  encourage 
industrial organizations and associations to publicise case studies, disseminate training 
materials  and  use  electronic  commerce  themselves.  This  could  involve  Chambers  of 

4^ The European ConsumerNet project, launched recently, is an example of such a service. Sec 
http://www.ispo.cec.be/ispo/call/quacii.him «n the World-Wide Web. 
44  Trade associations and Better Business Bureaus already grant "labels" and "accreditations", which can be certified 
electronically, to «ew cyber-firms. 

21 

Commerce,  industry  groupings  at  local,  national  and  European  level  technology 
promotion  associations,  and  groups  of  SMEs,  as  well  as  partnership  programmes 
(such as Europartnertariat and Interprise). 

The  Euro-Info  Centres  network  will  undertake,  in  the  context,  of  the  Multi-annual 
Programme  for  SMEs45  specific  initiatives to  increase the exposure  of  companies, ::i 
particular  SMEs, to electronic commerce techniques. Following the completion of the 
consultation on the Green Paper on Commerce and Distribution,46 a work  programme 
will  be  launched  by  the end  of  1997, including  electronic  commerce  actions  for  the 
retail  and  distribution  sector  to  respond  to  user  requirements.  Awareness  promotion 
will  furthermore  be  pursued  through  the  G7  project  Global  Marketplace  for  SMEs 
building amongst others upon the first annual conference  of this project  in April  1997 
which addressed  many of the issues that directly concern  SMEs and policy-makers  in 
global  electronic  commerce.  The  use  and  development  of  standards  to  facilitate 
international product sourcing will also be promoted. 

66.  Best  practice  pilot  projects  play  an  important  role  in  raising  awareness.  Pilot 
projects  can be designed,  for  example, to test business innovations and  examine their 
compatibility with existing legal and fiscal  environments. They  can also contribute to 
the  analysis  of  structural  changes  in  and  across  sectors  and  of  the  impact  on 
employment.  SMEs often  lack the resources to try  out new applications  individually. 
Pilot  projects  typically  develop  business  models  that  take  full  account  of  Europe's 
multilingual  and  multicultural  character  and  the  particular  preferences  of  European 
consumers and businesses. 

The Commission  will  increase  support  for  best practice pilots  and  will  extend  large-
scale  awareness  and  take-up  actions  to  promote  business  innovation  across  a  wide 
range  of  market  sectors,  such  as  retail,  food  and  agribusiness,  electro-mechanical 
engineering,  shoes, textiles, publishing,  and  tourism.  Relevant  programmes  for  these 
actions  such  as  R&D  programmes  in  information  technologies  snd  structural  funds 
will be exploited to the full.  Where appropriate, European coordination  structures will 
be  set  up. The Commission  encourages  private  sector  initiatives  to  stimulate just-in-
time business-to-business  markets  for  accounting,  invoicing, and  settlement  flows,  to 
facilitate  the  adoption  of  integrated  financial  management  software  and  tc  reduce 
cross-border payment periods in commercial transactions47. 

PUBLIC  ADMINISTRATIONS:  PROMOTING  A MORE  PRC-ACTIVE PUBLIC SECTOR 

67.  The  public  sector  has  an  important  role  tc  play  in  the  promotion  of  electronic 
commerce.  Administrative  formalities  and  requirements,  as  well  as  the  services 
provided  by  the  public  sector,  form  part  of  day-to-day  business.  70%  of  the  data 
handled  by  administrations  originates  in  industry.  Areas  where  electronic  support 
could  be  applied  include  customs  and  taxes,  social  security,  employment  services, 
public  registries  and  public  procurement.  Organizational  (and  possibly  regulatory 

45  COM(96)98 final 
46  COM(96)5 final 
47  The estimated cost savings achievable by introducing integrated 'just in time' financial  management is estimated to be 2-3% 
of of a company's turnover. It should also be possible to reduce cross-border payment periods significantly  from the current 
average of two weeks. 

22 

changes)  may  be  required  for  the  effective  introduction  of  electronic  commerce  in 
launch 
business-public  administration 
benchmarking  initiatives (studies, pilot projects)  to learn from practical  experience of 
public  administrations  and 
including 
requirements for interoperability at European level. 

relationships.  The  Commission  will 

specific  European  needs, 

identify 

to 

interoperability 

68.  Under  the present  IDA programme, trans-European  networks  for  administrations 
are  being  introduced.  They  will  involve  commercially  available  technical  solutions 
to  be  considered  by  both  public 
whilst 
administrations  and  the  private  sector.  The  Commission  will  issue  guidelines  to 
identify  projects  of  common  interest  and  implement  measures  to  ensure  the 
interoperability of networks. 

issues  will  need 

69.  The  Member  States  themselves  should  confirm  their  confidence  in  electronic 
commerce by using it at the various levels of public administration. This would act as 
a  catalyst  on  the  market  as  a  whole.  The  most  exemplary  action  will  be  for  public 
administrations 
to  use  electronic  commerce  for  their  own  purchases.  Public 
procurement  represents  a  large  part  of  the  economy  (some  12%  of  EU  GDP). 
Administrations  could  not  only  realise  considerable  potential  savings  for  their  tax 
payers but their actions would also speak louder than words48. 

Bringing  together  the  experiences  of  the  SIMAP  public  procurement  project,  the 
results  of  related  projects  funded  under  research  and  development  programmes,  and 
responses  to the  Green Paper on Public Procurement,  the Commission  will  present  a 
strategy  paper  later  this  year,  together  with  an  action  plan  to  stimulate  the 
development  of  electronic  procurement.  The  paper  will  identify  any  measures  that 
need  to be  taken  to  ensure  that  electronic  commerce  improves  transparency,  ensures 
non-discrimination  and  does  not  create  new  barriers  to  openness 
in  public 
procurement  markets.  The  Commission  will  examine  to  what  extent  existing  public 
procurement  directives  need  review  in  order  to  facilitate  the  use  of  electronic 
commerce and simplify  or reduce any administrative  requirement  or procedure that  is 
unnecessary in the new electronic environment. 

70.  The  Commission  will  step  up  its  own  efforts  to  be  a  major  user  of  electronic 
commerce.  The  Commission  has  already  piloted  the  electronic  submission  of 
proposals in the ACTS and Esprit R&D programmes, and has made use of an Internet 
forum  to  encourage  interactive  response  and  comment  to  the  Public  Procurement 
Green  Paper. The Commission  will make more extensive  use of "virtual" discussions 
to  stimulate  public  debate  on  Community  policy49.  Links  with  its  agencies  and 
Member  State  administrations  and the  general  public  will  also  be  developed  further. 
The Commission will present an Action Plan for its use of electronic commerce by the 
end of 1997. 

48  The Swedish Association of Local Authorities has estimated that savings of 3% of the procurement budget could be 
achieved through the use of electronic commerce. 
49  Recently  a successful  public debate was held with Commissioner Oreja via the Internet on the Intergovernmental 
Conference. 

23 

P U T T I NG  E L E C T R O N IC  C O M M E R CE  AT  T HE  S E R V I CE  OF  T HE  C I T I Z EN 

71.  Electronic  commerce  is  the  Information  Society  in  practice.  However,  as  the 
Information  Society  Forum  has pointed  out  in their  first  annual  report50  "neither  our 
people nor our institutions nor most of our companies are really prepared  for  the new 
technologies". The  Forum  emphasised  the need  for  better  education  in the  use  of  the 
new technologies,  next  to  other  key  issues  such  as  awareness  creation  and  readiness 
by  governments  and  public  authorities  to  assume  their  responsibilities.  Electronic 
commerce  requires  new  skills  for  network  literacy.  Consumers  will  need  to  become 
familiar  with  information  technology  for  communicating  and  ordering  goods  and 
services electronically. The basis for such skills should already  be laid  in primary  and 
secondary  schools.  Employees  and  managers,  especially  in  SMEs,  may  have  to  get 
used to doing business internationally instead of in a national or regional market place 
and  will  require  retraining  to  this  end.  As  the  Forum  expressed  clearly,  the 
Information  Society will be a Lifelong  Learning Society. 

The Commission  will  supplement  policies  at regional  and  national  levels  to  improve 
skills.  Regarding  consumers,  the  above  mentioned  Communication  on  the  consumer 
dimension  of  the  Information  Society  will  address  this.  Regarding  employee  skills 
vocational  (re-)training  to  help  adapt  to  industrial  change  is  foreseen,  e.g.  in  the 
context  of the Socrates and  Leonardo  programmes, and the Action  Plan  "Learning  in 
the Information  Society" with a view to training for the knowledge society, as well  as 
pursued  by  the  ADAPT-BIS  programme  and  the  activities  of  the  European  Social 
Fund's "Objective 4". Furthermore a Euromanagement  Programme will be initiated  to 
promote  greater  understanding  of  electronic  commerce  amongst  management  in 
SMEs. 

72. Finally, the Information  Society Forum as well as the High Level Expert Group on 
the  Social  Aspects  in the  Information  Society  have  stressed  the  need  for  public  and 
widespread  participation  in  the  evolving  Information  Society,  to  avoid  the  risk  of 
creating  classes  of  information  'have-nots'  and  'want-nots'.  While  the  Commission 
expects  that  electronic  commerce  will  have  a  profound  impact  on  businesses, 
institutions and upon our lives as consumers and employees, it is not self-evident  how 
exactly  electronic  commerce  will  and  should  develop  in  Europe.  A  broad  and 
continued  societal dialogue about these questions is essential to overcome the hurdles 
and  reap  the  benefits.  In  this  context,  the  Commission  particularly  welcomes 
collaboration  at  European  level  between  industry  and  consumer  groupings  and  their 
members  to  stimulate  the  necessary  private-public  dialogue  and  to  support  the 
implementation  of  the  actions  of  this  Initiative.  As  part  of  this  Initiative,  the 
Commission  will  actively  stimulate  the  public  debate  on  electronic  commerce  in 
I'Aimpc. 

CONCLUSIONS 

I. This Communication  presents the European  Initiative  in Electronic Commerce  as a 
set of action-oriented  proposals  for  advancing  electronic commerce  in Europe.  These 

^  First Annual  Report to the  European Commission from  the  Information Society Forum, 'Networks for  People and  their 
Communities', June  1996 

24 

proposals  address  access  to  the  global  marketplace,  legal  and  regulatory  issues,  and 
promoting  a favourable  business environment.  Some of them  are already  included  in 
the  Rolling  Action  Plan  for  the  Information  Society,  others  are  new  and  require  an 
update.  Their  implementation  will  involve  close  consultation  with  the  relevant 
industry  sectors  and  involve  all  relevant  policy  domains.  Coherence  between 
technological,  regulatory  and  support  actions  is an essential  element  of the  approach 
advocated  by  this  Initiative.  With  this  Initiative  the  Commission  also  issues  an 
invitation to all parties involved to engage in a public dialogue about the development 
and take-up of electronic commerce in Europe. 

II.  To  implement  this  European  Initiative  in  Electronic  Commerce  the  Commission 
plans to undertake  the  following  key actions  which  should  be completed  by the  year 
2000  with  a mid-term  review  (new actions which  are not  yet  included  in the  current 
Information  Society Action Plan are marked with an asterisk): 

25 

ENSURING  ACCESS  TO  THE  GLOBAL  MARKETPLACE:  INFRASTRUCTURE,  TECHNOLOGY 

AND SERVICES 

Ensure full  implementation of the telecommunications  liberalisation 
package by Member States 

_ 

__ 
by  1.1.98 

.  Pursue full  implementation of WTO basic telecommunications 

bv  1.1.98 

agreement by its signatories 
Implement the ITA and MRA Agreements for the removal of tariff 
and non-tariff barriers on !T products 
Promote active involvement of Europe's industry and public bodies 
in the evolution of the Internet and the provision of high bandwidth 
infrastructure  through the R&D and TEN-TELECOM  programme. 
Implement thematic call on electronic commerce in the ESPRIT 
R&D programme; further  focus appropriate R&D programmes 
Launch Fifth  Framework Programme with electronic commerce as 
a priority for technology development and take-up 
Adopt Communication on a European standardization  initiative for 
electronic commerce (with action plan) 
Launch of a specific  action on standardization projects for 
electronic commerce 
Organize global standardization conference, Brussels,  1 -3 October 
97 
Launch of specific actions for international cooperation in CEEC, 
MED, G7 Global Marketplace for SMEs within the EU R&D 
programmes 

ongoing' 

1 

97* 

4-
j  15 March 
[  97- QPA 98* 

ongoing 

July 97 

June 97* 

October 97 

97' 

! 
j 

CREATING  A FAVOURABLE REGULATORY  FRAMEWORK 

Identify  Single  Market  barriers  and  legal  uncertainties  affecting 
electronic commerce 
Launch  regulatory  initiatives  in the area  of  electronic  payments*, 
contracts  negotiated  at a distance  for financial services*,  copyright 
and  neighbouring  rights,  legal  protection  of  conditional  access 
services and digital signatures 

questions, 

Assess  the  need  for  further  initiatives  covering  Single  Market 
horizontal 
commercial 
communications,  contract  law,  accountancy,  fraudulent  use  of 
electronic  payments,  data  security,  data  protection, 
industrial 
properly, direct and indirect taxation and public procurement 

professions, 

regulated 

ongoing 

end 1997* 

ongoing* 

Reinforce  international  dialogue  in the appropriate  multilateral and 
bilateral  fora  to achieve  an  adequate  global  regulatory  framework 
for  electronic  commerce,  in  particular  in  data  security,  data 
protection, intellectual property rights, and taxation 
Organize with the German Government the Ministerial  Conference 
on Global Information Networks, Bonn, 6-8 July 97 

ongoing 

July 97* 

26 

PROMOTING A FAVOURABLE BUSINESS  ENVIRONMENT 

Adopt Communication on consumer dimension of Information 
Society, including promotion of consumer access to electronic 
commerce 
Promote electronic commerce awareness and best practice actions, 
by implementing a specific  Euro-Info-Centres  initiative, launching 
a Euromanagement programme and setting up a European co 
ordination structure for electronic commerce use in the tourism 
sector, as well as through promotion of the Euro for SMEs. 
Intensify  support for and launch new best-practice pilots, large-
scale awareness activities, take-up actions using ICT R&D, 
innovation and standardization programmes and Structural Funds 
Present an action plan on stimulating the development of electronic 
procurement 
Present Guidelines and measures addressing interoperability  issues 
related to public administrations in IDA 
Present Action Plan for Commission to become leading user of 
electronic commerce 
Learning and training initiatives for electronic commerce in 
programmes such as Leonardo and Socrates 
Stimulate the public dialogue on electronic commerce in Europe, 
including establishment of dedicated Website 

June 97 

End 97* 

Sept 97* 

end 97* 

Sept 97* 

end 97* 

1997 

April 1997* 

III.  The  Commission  invites  the  European  Parliament,  the  Council, 
the  Economic  and  Social  Committee  and  the  Committee  of  the 
Regions  to  discuss  the  issues  involved  and  to  give  their  political 
support  to  this  European  Initiative  in  Electronic  Commerce. 

This  document  is accessible  at  the  following  Internet  address: 

http://www.ispo.cec.be/Ecommerce 

27 

17/04/27 

ISSN 0254-1475 

COM(97) 157 final 

DOCUMENTS 

EN 

10  15  16 

Catalogue number  : CB-CO-97-I55-EN-C 

ISBN 92-78-18682-1 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg